Compositional changes in the FTSE100 index from the standpoint of an arbitrageur

Kwaku Opong and Antonios Siganos ()
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Antonios Siganos: Adam Smith Business School, Glasgow University

Journal of Asset Management, 2013, vol. 14, issue 2, No 5, 120-132

Abstract: Abstract We explore the profitability of a strategy that is based on the quarterly addition/deletion revisions of the FTSE100 index and of a strategy that is based on the irregular additions of reserve companies on the list of firms to be included in the FTSE100. We estimate the transaction cost based on whether investors buy/sell physical shares and contracts for difference (CFDs). We find that investors can enjoy significant net profitability from an investment strategy based on firms on the FTSE reserved list. An investment strategy based on the quarterly revisions of the FTSE100 is profitable as long as traders buy/sell CFDs and have significant negotiation power to trade within the bid and ask spread. This study supports the price pressure and attention grabbing news hypotheses. Our results also show evidence against stock market efficiency.

Keywords: stock market efficiency; index revisions; FTSE100; transaction costs; CFDs (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/jam.2013.8

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